Tax changes impact on diesel cars

From January 2006, diesel cars that meet Euro IV emission standards will no longer receive the 3% tax incentive.

Some fleet experts argue that fleet policies will have to be reviewed because diesel is no longer more advantageous than petrol.

The residual values of petrol and diesel cars are expected to become more closely aligned as a result of the tax changes.

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Diesel was traditionally considered a dirty fuel. But tax cuts and sexy marketing came close to persuading drivers that they wanted diesel in their tanks. However, it now seems that diesel is in trouble again. Last December, the Chancellor announced that diesel cars registered from January 1 2006 which meet Euro IV emission standards will no longer benefit from a 3% tax incentive.

“Many employers spent time persuading employees that diesel was an option that they should consider, but persuaded them on the basis that the tax burden would not be as great,” says Alistair Kendrick, tax partner at Ernst & Young. Employee Benefits/Alphabet Fleet Research 2005 highlights that 17% of employers even restricted the choice of company car to diesel in the last twelve months while a further 5% said they planned to do so over the coming year.

However, Kendrick believes that organisations are going to have to review their fleet policies again because of these changes. “Most fleets don’t want to have to reassess what they do annually and this will make them now.” But this is a contentious issue. Harvey Perkins, a director of people services at KPMG, disagrees: “I don’t think this is a big enough issue for employers to have to re-think their fleet policies. In Europe, the bottom line is that diesel is where it’s at. The new models coming out are just so efficient.”

The main reason for this is that diesel is just far more fuel efficient, which saves on cost in the long run. He adds that hybrid vehicles will become more interesting in the course of the next few years, however, models like the Toyota Prius are not totally viable yet. “Apart from the fact that Cameron Diaz has two.” Building materials firm Saint-Gobain, which is best known in the UK for its Jewson builders merchant brand, has just renewed its contract with Vauxhall to provide around 3,000 new cars, all diesel.

Denis Wellfare, director of transport, said that it decided on an all diesel fleet, consisting of Vectra and Astras, because of the fuel consumption. Kendrick explains that there was no hint that the government’s 3% sweetener was only temporary. “It’s a stealth tax because you can’t have a choice. Euro IV is the only diesel you can drive (from January 2006).” There is also an issue with regards to residual values. “If the diesel market is going to be flooded and petrol is in decline and petrol is what Joe Bloggs wants, then you may well find that the whole life costs of the vehicles from the leasing companies are going to be more expensive,” adds Kendrick.

But Jon Walden, managing director of Lex Vehicle Leasing, says: “The January 2006 legislation should further slow down diesel sales to a point where diesel and petrol fleet sales will be brought into line with one another for the first time in the past few years. This will obviously have a huge impact on residual values.” “Diesel’s still the cake; it just doesn’t have the cream on top,” concludes KPMG’s Perkins.